Business News 18.5.2017 07:38 am

Why Lynne Brown might be cooking up a storm

Public Enterprises Minister Lynne Brown.

Public Enterprises Minister Lynne Brown.

Startling statements were made when defending the Molefe move.

At the start of her media briefing last Friday, public enterprises minister Lynne Brown told journalists that she cooked a pot of soup before coming to the meeting.

“That’s what I do, I cook a pot of food when I’m stressed,” she said, laughing at herself.

The briefing was called in response to the news that the Eskom board “rescinded” its earlier decision to accept Molefe’s “application for early retirement” in November last year.

This very sentence contains highly-disputed statements at the heart of Brown’s stress. Did he not resign? How can a decision that was accepted, confirmed and implemented be rescinded about six months later?

Nevertheless Brown supported Molefe’s return, basically saying government had little choice but to either pay Molefe the R30 million “pension” the board committed to before she earlier disallowed it, or reinstate him. Alternatively Molefe would have dragged Eskom to court, Brown said.

That is R30 million for about two years’ service by a person contracted for five years, who is only 50 years old.

Since then, the ANC told Brown to reverse her decision to allow Molefe’s return and there is no indication so far as to how she is going to navigate the competing interests and conflicting demands in this situation.

In her effort to defend Molefe’s return, Brown made a few very interesting statements, some of which didn’t make sense and at least one contradicts statements she herself made not so long ago.

We looked at some of them critically:

“Mr Molefe was actually the person who brought Eskom to where it is now after three years”

Brown attributes the Eskom recovery wholly to Molefe’s leadership. It is true that load shedding stopped and the plant performance improved under his leadership from 70.3% in the three months to the end of 2015 to 77.3% in the corresponding period in 2016. This enabled Eskom to do more maintenance and reduce breakdowns over the same period from 16.2% to 10.7%. Eskom illustrated the turnaround in this graph:

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While his leadership skills should not be underestimated, one should also keep in mind that the drop in electricity demand provided space for maintenance. The government cash injection of R23 billion and conversion of a loan of R60 billion to equity, as well as the focused support of the war room, made the job considerably more possible than what his predecessors had to face.

Stats SA illustrates the drop in demand as follows:

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Molefe should probably be given credit for the 25% increase in export sales, which is a way of utilising excess generation capacity that would strengthen Eskom’s finances.

“. . . the board has assured me it (the reinstatement of Molefe) is a legal process”

Brown’s readiness to accept the Eskom board’s assurance that it is acting lawfully is strange in light of her earlier statement that she found the “argument presented by the board on why the (R30 million) pension arrangement was conceived lacking in legal rationale”. Nevertheless, this might ultimately be decided in court as various parties have indicated that they will challenge Molefe’s reinstatement.

“They haven’t had a bonus under my watch”

Brown criticised the media for always raising the matter of bonuses paid to the Eskom executive. She said no bonuses had been paid for the last three years. Nevertheless, she said in her statement issued on April 23: “I found the argument presented by the board on why the pension arrangement was conceived lacking in legal rationale, and it cannot be substantiated as a performance reward because Mr Molefe has already been granted a performance bonus for his contribution to the turnaround of Eskom.”

“Eskom, for the first time, has actually been able to even run its company with a 2.2% tariff increase.”

Energy regulator Nersa’s hands are tied by a court ruling regarding interim increases of R44 billion Eskom applied for earlier. As a result, it granted Eskom only a 2.2% tariff increase which even Nersa admitted is financially unsustainable for Eskom. In fact, if Eskom got the R44 billion it applied for and presumably believes it needs, the tariff increase this year would have been around 18%.

Nevertheless, Eskom’s customers should be grateful if, as Brown says, the utlity’s finances improved so much that it can do with 2.2%. Eskom is expected to submit its next tariff application for 2017/18 within the next month and on the basis of Brown’s statement, consumers might insist on a reasonable increase. Moneyweb will, however, not hold our collective breath.

“The act governs the pension and that is how the calculations (for the R30 million) have been done”

There is a world of detail between the Pension Fund Act and the R30 million payout the board approved for Molefe and the devil is often in the detail.

There was an agreement with the previous energy minister that 72c/kWh would help.

Brown said this in response to a question about Eskom’s resistance to Independent Power Producers (IPPs) in conflict with government policy.

Moneyweb has confirmed with both the Department of Energy and the South African Renewable Energy Council (SAREC) that there was no agreement to cap the tariff Eskom would pay IPPs on the outstanding 37 projects in bid rounds 4 and 4.5. If that is what the minister meant, she was mistaken. Former energy minister Tina Joemat-Pettersson set a deadline for Eskom to sign the 37 outstanding power purchase agreements, on April 11, at the tariffs that were negotiated with the department. Eskom is refusing and is only prepared to sign at a maximum of 62c/kWh, but there is no agreement in this regard.

Lynne Brown is known as a straight-talking, down-to-earth and principled leader. During the press conference one journalist however asked her about an apparent disconnect between the principled Lynne Brown and Lynne Brown as public enterprises minister.

It seems as if Brown is in a corner. We don’t understand why and we don’t know how she is going to get out of it.

That’s why we suspect she might be sweating behind the stove right now.

Brought to you by Moneyweb 

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